State Treasurer Ted Wheeler has spent $163,000 on private lawyers defending his agency and investment officers against an unfolding ethics investigation. The costs continue to mount with no limit for one firm.

Two investment officers -- Jay Fewel and Sam Green -- proceeded without lawyers and subsequently were dropped from the proceedings. The Portland law firm of Markowitz, Herbold, Glade and Mehlhaf, which has never handled a case before the ethics commission, so far has billed Treasury $117,236 defending seven other officers. Four have been dropped from the case, and three remain under investigation. They are Ron Schmitz, chief investment officer; Brad Child, senior real estate investment officer; and Andy Hayes, private equity investment officer.

Last October, Wheeler hired the Harrang Long Gary Rudnick law firm under a $75,000 contract to represent the agency before the ethics commission, although Treasury faces no ethics investigation. The lead lawyer under the contract, former Deputy Attorney General Pete Shepherd, charges $350 an hour. Justice Department lawyers who typically represent Treasury charge $137 an hour. Attorney General John Kroger authorized the outside hiring because his lawyers can't represent the ethics commission and Treasury in the same proceeding.

As the legal costs mounted, Wheeler created an internal policy to protect employees from legal bills if they are investigated for conduct allowed by the Treasury.

The new policy, instituted in December, outlines how employees can request payment. "Treasury will notify an employee whether a request is approved and the maximum reimbursement authorized," according to the policy, disclosed to The Oregonian under a public records request. The policy also said Treasury "retains the right to make a partial reimbursement for legal expenses based on management's assessment whether the charges incurred are reasonable."

The policy also said employees "will not be reimbursed" for other costs, such as a fine.

Those rules don't apply to the investment officers in the current ethics case. Wheeler said there is no cap on their legal bills and that he had taken no action to restrict them. His agency said it had no record of any review of legal bills submitted so far.

Lisa Kaner, a Portland attorney representing officers, said Treasury has said it will pay any ethics fine, as much as $1,000 per violation, imposed on the investment officers.

The ethics commission is still investigating and hasn't charged the men with any ethical violations.

Wheeler went public with the legal costs in a January letter to Gov. John Kitzhaber. Citing legal bills that then totaled more than $90,000, Wheeler asked for the governor's support in changing state law to protect employees and taxpayers from such costs.

"Under the current framework, any state employee who diligently follows his or her agency's rules could be in the professionally perilous position of having to face the Ethics Commission -- and to incur significant legal costs," he wrote the governor.

He didn't tell the governor he already had protected his employees. "I probably should have," Wheeler told The Oregonian in a recent interview.